What you will learn to do: compare and contrast cost, profit, revenue, and investment centers

A segment is a fairly autonomous unit or division of a company defined according to function or product line. Traditionally, owners have organized their companies along functional lines. The segments or departments organized along functional lines perform a specified function such as marketing, finance, purchasing, production, or shipping. Recently, large companies have tended to organize segments according to product lines, such as an electrical products division, shoe department, or food division.

A responsibility center is a segment of an organization for which a particular executive is responsible. There are four types of responsibility centers—expense (or cost) centers, profit centers, revenue centers, and investment centers. In designing a responsibility accounting system, management must examine the characteristics of each segment and the extent of the responsible manager’s authority. Care must be taken to ensure that the basis for evaluating the performance of an expense center, profit center, revenue center, or investment center matches the characteristics of the segment and the authority of the segment’s manager. The following sections of the chapter discuss the characteristics of each of these centers and the appropriate bases for evaluating the performance of each type.

You can view the transcript for “Types of Responsibility Centers” here (opens in new window).

When you are done with this section, you will be able to:

• Identify cost centers
• Identify profit centers
• Identify revenue centers
• Identify investment centers

Learning Activities

The learning activities for this section include the following:

• Reading: Cost Centers
• Self Check: Cost Centers
• Reading: Profit Centers
• Self Check: Profit Centers
• Reading: Revenue Centers
• Self Check: Revenue Centers
• Reading: Investment Centers
• Self Check: Investment Centers